Skull and Bones for the Jewelry Market?

According to management remarks in the latest quarterly earnings conference call for Claire's Stores (NYSE: CLE) , this is exactly what the jewelry and accessories market is witnessing. Those hoping for a revival in Goth attire (was it ever alive?), will be disappointed -- the skulls being worn are the "cutesy" variety like those found in Pirates of the Caribbean. Unfortunately, there may not be enough dancing with the dead to resurrect the company's full-year results.

First-quarter sales were up marginally, by 3% compared with the same period a year ago. Claire's in North America and in the international market each increased comparable same-store sales in the low-single digits. Management pointed out that fashion trends in both markets are moving "in sync." In total, comps were up 3% year over year.

International sales were 28% of net revenues, down from 29% in the year-ago period. This doesn't reflect lower volume, but rather the negative effects of dollar exchange rates. Sales in Europe appear to be holding steady, save one country in particular, France. The social and political unrest in this country is hurting apparel retailers in this market.

During the call, management indicated that customers responded well to its spring merchandise lineup. In particular, jewelry is doing "extremely well," though management indicated that there is a change in jewelry styles under way. More specifically, the amount of layering is toned down from what they have seen in the past. Also, the jewelry items selected by consumers this year are less bold than last year's styles. Beyond jewelry, accessories (especially handbags) are also seeing greater attention from customers. Finally, celebrity lines are going strong, drawing shoppers into the stores. Celebrity branded sales are roughly 6% of net sales, up from year-ago levels.

Apparently this wasn't enough, since a late Easter negatively affected comps, bringing down overall results below management's expectations. Going forward, a rebound in the North American and European markets is not expected for the remainder of the year. As a result, the company is now projecting that earnings for the year will come in between $1.90 to $1.95 per share, as gross margins remain relatively flat and comps increase 3% to 4%.

Claire's Stores appears to be right on top of consumers' fashion tastes, but this will not be enough to spur substantial growth in the year ahead. This weakness provides ample time for prospective investors to make a sound decision, but it also should give one caution before diving in.

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